S.D.S. Electronics Private Limited, ... vs Assessee

PER BHAVNESH SAINI, J.M. :

This order shall dispose off all the above

appeals filed by the assessee on identical issues. 2

2. The appeal in ITA No.169/Chd/2014 is

directed against the order of learned Commissioner of

Income Tax(Appeals), Chandigarh dated 13.11.2013 for

assessment year 2009-10.

3. We have heard the learned representatives of both

the parties and perused the material available on record.

4. On first issue, the assessee challenged the

disallowance of commission of Rs.8,33,675/- by taking

average rate of commission of 9%. The identical issue is

raised in all the remaining appeals. The learned

representative of both the parties submitted that the issue

is same in all the appeals and have mainly argued in

assessment year 2009-10 and stated that similar order

could be followed in other appeals.

5. The brief facts of the issue are that the Assessing

Officer noticed that the assessee had paid commission of

Rs.75,41,249/- to various persons and the rate of

commission varied between 4% to 18%. The Assessing

Officer asked for the details of services rendered and the

assessee had submitted that the persons to whom

commission was paid were instrumental in enhancing the

sales of the company and commission had been given on the

basis of sales made by different persons. The Assessing

Officer was not satisfied with the explanation of the

assessee and adopted average rate of commission of 9% as 3

allowable, resulting into disallowance of commission of

Rs.8,33,675/-.

6. The assessee challenged the above addition before

the learned CIT (Appeals) and submitted that there were no

basis to adopt the rate of commission at 9%. The learned

CIT (Appeals), however, dismissed this ground of appeal of

the assessee holding that no proper justification has been

given for paying commission at different rates to various

commission agents.

7. The learned counsel for assessee reiterated the

submissions made before the authorities below.

8. On the other hand, the learned D.R for the

Revenue relied upon the orders of the authorities below.

9. We have considered the rival submissions and

perused the material available on record. The Hon'ble

Delhi High Court in the case of CIT Vs. Dalmia Cement (B.)

Ltd., 254 ITR 377 held as under :

" U n d e r s e c t i o n 3 7 ( 1 ) o f t h e I n c o me - t a x A c t , 1 9 6 1 , the jurisdiction of the Revenue is conf ined to deciding t h e r e a l i t y o f t h e b u s i n e s s e x p e n d i t u r e , v i z . , wh e t h e r the a mo u n t claimed as deduction wa s f actually e x p e n d e d o r l a i d o u t a n d wh e t h e r i t wa s wh o l l y a n d exclusively f or the purpose of business. It must not, h o we v e r , suffer from the vice of collusiveness or colourable device. The reasonableness of the expenditure could be gone into only f or the purpose of d e t e r m i n i n g wh e t h e r , i n f a c t , t h e a mo u n t wa s s p e n t .

4 Once it is established that there was nexus between the expenditure and the purpose of business, the Revenue cannot jus tif iably claim to pu t itself in the ar mc hair of the businessman or in the position of the board of d i r e c t o r s a n d a s s u me t h e r o l e t o d e c i d e h o w m u c h i s reasonable expenditure having regard to the c i r c u ms t a n c e s o f t h e c a s e . No businessman can be co mpelled to maximize his prof its."

10. The Hon'ble Allahabad in the case of DCIT Vs. Super

Tannery (India) Ltd., 274 ITR 338 held as under :

"If an assessee, in order to avoid delays and h a r a s s me n t t o g e t mo n e y wh i c h i s l a wf u l l y d u e t o h i m a t a n e a r l y d a t e i n o r d e r t o e n a b l e h i m t o u s e t h e s a me i n his business, utilizes the services of a third person or a middle man, it cannot be said that the expenditure has not been laid out for the purpose of business. Moreover, the nature of expenditure has to be seen f rom the vie w point of the assessee. There is no provision to disallo w a part of such expenditure on the ground of e x c e s s i v e n e s s wh e n t h e e x p e n d i t u r e h a s b e e n f o u n d t o be genuine.

For the assessment year 1986-87, in order to get duty d r a w- b a c k of Rs.25 lakhs released f rom the Central Government, the assessee had incurred expenses of Rs.2,37,000 wh i c h wa s paid to the commission agent. The Assessing Off icer had d i s a l l o we d a s u m o f R s . 1 , 2 3 , 1 3 0 o u t o f t h e a m o u n t o n the ground that it wa s excessive payment. The Commissioner (Appeals) h o we v e r , deleted the d i s a l l o wa n c e . The Tribunal upheld the order of the Commissioner (Appeals). On appeal to the High Court :

5 H e l d , d i s m i s s i n g t h e a p p e a l , t h a t t h e T r i b u n a l wa s j u s t i f i e d i n a l l o wi n g t h e d e d u c t i o n . "

11. Considering the facts of the case in the light of

the above decisions, it is clear that the disallowance out of

the commission by adopting average rate of 9% was wholly

unjustified. The Assessing Officer asked the assessee to

file details of commission paid to various parties and nature

of services rendered by them and the rate of commission,

etc. The assessee furnished the details of commission on

sales, which are also noted in the assessment order. The

Assessing Officer considering the details found that there

was variation in the rates of commission paid to various

parties on the sales effected through them. The Assessing

Officer, therefore, adopted average rate of 9% commission as

allowable. It is, therefore, clear that the Assessing Officer

did not dispute that the commission agents have rendered

services for the business of assessee for effecting sales, etc.

The Assessing Officer has also not disputed that the

assessee paid commission to various parties for effecting

sales. The Assessing Officer has also not disputed that in

fact, genuine commission payments have made by the

assessee to various persons for effecting sales for the

assessee company. Therefore, it is clearly proved on record

that the assessee incurred commission expenditure wholly

and exclusively for the purpose of business. The Assessing

Officer merely found rate of commission differing from 4% to

18%. Thus there were no basis for the Assessing Officer

to adopt average rate of 9% commission as allowable. In 6

the absence of any material brought on record against the

assessee, the Assessing Officer was not justified in taking

average rate of commission for the purpose of making

addition against the assessee. Both the decisions in the

cases of Dalmia Cement (B.) Ltd. (supra) and Super Tannery

(India) Ltd. (supra) clearly apply in favour of the assessee.

In view of the above discussion, we are of the view that the

authorities below were not justified in making disallowance

out of the commission amount. We accordingly set aside

the impugned order and delete the entire addition of

Rs.8,33,675/-. This ground of appeal of the assessee is

accordingly allowed.

12. On second issue, the assessee challenged the

disallowance of depreciation of Rs.41,477/-. The Assessing

Officer disallowed the depreciation in respect of machinery,

which was not put to use. The assessee submitted before

the Assessing Officer that the depreciation was claimed on

the existing unit and was allowable but the Assessing

Officer was not satisfied with the explanation of the

assessee. The assessee claimed before the learned CIT

(Appeals) that the depreciation is allowable even if the

machinery was not actually used and was kept ready for

use and relied upon the decision of the Hon'ble Punjab &

Haryana High Court in the case of M/s Nahar Exports Ltd.,

288 ITR 494. The learned CIT (Appeals), however,

dismissed this ground of appeal of the assessee. 7

13. After considering the rival submissions, we are of

the view that the matter requires reconsideration at the

level of the Assessing Officer. The Hon'ble Punjab &

Haryana High Court in the case of CIT Vs. Nahar Exports

Ltd., 296 ITR 419 held that "Where the machinery is kept

ready f or use but could not be put to use f or non-receipt of

orders, the assessee wo u l d be entitled to depreciation".

The learned counsel for assessee submitted that the

m a c h i n e r y i n q u e s t i o n w a s p a r t o f the block of assets and w a s

ready for use. In the year under consideration, no orders

were received, therefore, part of the machinery could not be

used. He has further submitted that in the next year the

same machinery have not been discarded or sold. The

submissions of the learned counsel for assessee have not

been verified by the authorities below in the light of the

decision of the Hon'ble Punjab & Haryana High Court in the

case of Nahar Exports Ltd. (supra). Therefore, the matter

requires reconsideration at the level of the Assessing

Officer. We accordingly set aside the orders of the

authorities below and restore this issue back to the file of

the Assessing Officer with direction to redecide this issue in

accordance with law by giving reasonable sufficient

opportunity of being heard to the assessee.

14. In the result, this ground of appeal of the

assessee is allowed for statistical purposes. 8

15. In the result, the appeal of the assessee is partly

as indicated above.

16. The remaining appeals of the assessee are

directed against the orders of learned Commissioner of

Income Tax(Appeals), Chandigarh dated 26.11.2013 for

assessment year 2010-11, challenging the disallowance

of commission of Rs.12,26,856/-by taking average rate

of commission of 9%, the order dated 13.11.2013 for

assessment year 2008-09, challenging the disallowance

of commission of Rs.3,19,648/- by taking average rate of

commission of 8% and the order dated 1.11.2013 for

assessment year 2007-08, challenging the disallowance

of commission of Rs.2,89,194/- by taking average rate of

commission of 8%. The issues involved in all the three

remaining appeals of the assessee are similar as have

been considered in assessment year 2009-10 in ITA

No.169/Chd/2014. By following the reasons for

decision for assessment year 2009-10 above, we set

aside the orders of the authorities below in all the three

remaining appeals of the assessee and delete the entire

additions.

17. In the result, all the remaining appeals of the

assessee are allowed.

9

18. In the result, the appeal of the assessee in ITA

No.169/Chd/2014 is partly allowed. However, the

remaining appeals of the assessee are allowed.

Order pronounced in the open court on this 21st

day of May, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 21 s t May, 2015

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh